UPDATED 18:36 EDT / FEBRUARY 23 2022

INFRA

NetApp delivers solid earnings, but mixed guidance sends stock down after-hours

Data storage company NetApp Inc. today beat expectations on fiscal third-quarter earnings and delivered revenue in-line with forecasts, but its stock fell 9% in extended trading after it warned that earnings in the next quarter would likely miss analysts’ targets.

The company reported third-quarter earnings before certain costs such as stock compensation of $1.44 per share, with revenue coming to $1.61 billion, up from $1.47 billion in the same period one year ago. Net income for the quarter came to $252 million. Wall Street had been looking for earnings of just $1.07 per share on the same revenue forecast.

NetApp Chief Executive George Kurian (pictured) said the positive results in the quarter were powered by the alignment of the company’s differentiated technology portfolio with customer’s priorities for cloud and digital transformation.

“Our focused execution and effective management of temporary supply chain headwinds enable us to capture our expanding opportunity while investing for continued growth and delivering operating leverage,” he added.

NetApp made a name for itself as a provider of high-end enterprise storage systems, but in recent times it has been trying to reinvent itself as more of a hybrid cloud data services and data management player. Indeed, these days the bulk of its sales can be attributed to the cloud.

The company has been working closely with public cloud infrastructure players such as Amazon Web Services, Google Cloud and Microsoft Azure. In addition, it also sells its NetApp Ontap file storage software as a managed service on the cloud.

NetApp said its hybrid cloud business segment delivered $1.5 billion in revenue in the quarter, compared with $1.42 billion a year ago. Meanwhile, the public cloud business segment added $110 million in sales, up from $55 million one year before.

NetApp’s older business also saw growth. Product revenue rose 9% year-over-year, to $846 million.

NetApp had more good news for investors, saying its public cloud annualized revenue run rate jumped 98% from a year ago, to $469 million, while its all-flash array ARR hit an all-time high of $3.2 billion. ARR refers to revenue the company expects to receive from customers for providing them with services, based on signed contracts.

Analyst Steve McDowell of Moor Insights & Strategy told SiliconANGLE that NetApp delivered solid results in the quarter, driven by its impressive execution in the cloud.

“There was a lot of skepticism when NetApp put cloud and cloud-native at the center of its strategy a few years back, but it has executed on that strategy very well,” McDowell said. “They’ve grown their public cloud business an insane 98% year over year, to $469 million. Its gross margin in public cloud is 71%. That’s very high.”

The analyst also highlighted NetApp’s cloud revenue retention rate of 169%, as noted by Kurian on a conference call. He said that demonstrates how NetApp’s cloud customers are not only sticking with the company, but generally increasing their spend.

As for NetApp’s traditional storage hardware business, McDowell said this was more modest but in line with the rest of the industry, which continues to struggle amid supply constraints and high demand.

NetApp also reported billings of $1.76 billion at the end of the quarter, up 10% from a year ago. Billings refers to the invoice amount billed to customers and is another metric used to gauge future revenues.

Looking ahead, NetApp said it’s expecting fourth-quarter revenue in a range of $1.635 billion to $1.735 billion, with earnings of between $1.21 and $1.31 per share. Wall Street earlier said it’s looking for revenue of $1.67 billion, albeit with higher earnings of $1.35 per share.

McDowell said that despite the market’s reaction, NetApp’s cautious forecast wasn’t totally unexpected given the current squeeze in the flash storage market. Indeed, he believes it’s one that will be repeated by most other storage companies when they come to report.

“NetApp landed right where most of us expected, and their guidance will ultimately look like the guidance its peers will issue over the coming weeks,” the analyst said.

Photo: SiliconANGLE

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